📖 Commercial lease glossary
Tenant Improvement Allowance
A tenant improvement allowance — often shortened to TI allowance or T.I. allowance — is a sum a landlord agrees to contribute toward the cost of building out or renovating a tenant's space, typically stated as a dollar figure per square foot. The tenant (or, less often, the landlord) manages the construction, submits costs for reimbursement, and any amount spent above the allowance comes out of the tenant's own pocket unless the lease provides for an amortized excess allowance instead.
How the allowance is stated and paid
Most leases express the allowance as a rate per rentable square foot — for example, $50.00/RSF for a new office buildout, or a lower figure for a space that only needs cosmetic work. Multiplied by the premises' square footage, that produces the dollar cap the landlord will fund.
Payment almost always follows the construction, not the other way around. The tenant builds out the space using its own contractor (subject to landlord approval of plans), submits paid invoices and lien waivers, and the landlord reimburses in draws as the work is completed and documented — not as a lump sum handed over at lease signing. Leases typically set a deadline for the tenant to submit its final draw request, often 6–12 months after the commencement date; allowance dollars not requisitioned by that deadline are usually forfeited, not carried forward.
What happens to costs above — and allowance left below
- ✓Costs exceeding the allowance: the tenant funds the overage directly, unless the lease includes an "additional allowance" or "excess TI" provision letting the tenant draw more against a rent increase (see amortization below)
- ✓Unused allowance: some leases let the tenant apply a defined portion of unspent TI dollars against cabling, signage, or even a rent credit; most leases are silent on this and the unused balance simply lapses
- ✓Landlord's work vs. tenant's work: a "turnkey" buildout has the landlord manage construction to an agreed specification with no cash allowance to the tenant; a TI allowance structure puts the tenant in control of the build and the budget — the two are different delivery models and change who bears the cost-overrun risk
- ✓Approved use: allowances are usually restricted to "hard costs" (construction) and a capped share of "soft costs" (architect, permit, and engineering fees) — a common source of disputed draw requests when a tenant submits design fees that exceed the soft-cost sublimit
Amortized TI: when the allowance becomes rent
When a tenant needs more buildout than the base allowance covers, some leases let the landlord fund the excess and recover it by amortizing that amount into rent over the lease term at a stated interest rate — commonly in the 8%–12% range, set in the lease rather than tied to a floating benchmark. The amortized excess TI is added to base rent as its own line, distinct from the underlying rent schedule and its escalations.
This distinction matters because it changes what "rent" means for the tenant's effective occupancy cost, and it changes what the landlord is owed if the lease ends early. A $10.00/RSF excess allowance amortized at 9% over a 10-year term adds a fixed monthly charge for the life of the term — a charge that has to be tracked and billed exactly like base rent, but that originates from a construction draw, not the original rent negotiation.
The early-termination payback trap
Most leases with a landlord-funded TI allowance — amortized or not — include a clawback: if the tenant terminates the lease early (through a termination option, default, or negotiated surrender), it owes the landlord the unamortized balance of the allowance, sometimes with unamortized leasing-commission costs added on top. That balance is calculated off a straight-line or interest-bearing amortization schedule set at the time the allowance was funded, not off the original allowance dollar amount.
This is the single most common TI-related dispute at lease termination: the tenant expects to walk away, and the landlord presents a payback figure the tenant's team was not tracking. An abstract that records the allowance amount, the amortization rate, and the schedule — not just the headline dollar figure — is what lets a property manager quote the correct payback number the moment a termination option is exercised, instead of reconstructing it from the original construction file.
Why TI terms belong in the abstract, not the construction file
A tenant improvement allowance touches three separate systems that rarely talk to each other: the construction draw process, the rent roll (if excess TI is amortized into rent), and the termination economics (if a payback clause applies). Abstracting the allowance amount, the deadline to draw it, the amortization rate and schedule, and any payback clause into a single record is what keeps those three downstream processes consistent.
Because amortized excess TI creates its own recurring charge in Yardi and MRI alike, getting the rate and schedule into the ERP setup correctly is what prevents a rent roll that quietly under-bills for years. Our specialists abstract the full TI structure — allowance rate, draw deadline, amortization terms, and payback triggers — cited to the page each figure comes from, so nothing depends on someone finding the original construction correspondence years later.
Frequently asked questions
What is a typical tenant improvement allowance per square foot?
It varies widely by market, asset class, and how much work the space needs — a "vanilla box" office buildout might run $30–$80/RSF, while a heavy medical or lab fit-out can run several multiples higher. There is no standard figure; the lease sets whatever amount the parties negotiated, and it should never be assumed from market averages when abstracting a specific lease.
Does the tenant get the TI allowance as cash?
Almost never as a lump sum up front. The landlord reimburses the tenant (or pays contractors directly) in draws as construction proceeds and costs are documented, subject to whatever deadline the lease sets for the final draw request. Unspent allowance typically cannot be converted to cash absent a specific lease provision.
What happens to unamortized TI if the tenant terminates early?
If the lease includes a payback clause — common wherever the landlord funded the allowance — the tenant owes the unamortized balance, calculated off the original amortization schedule, often along with unamortized leasing commissions. Leases without an amortized-excess structure or an explicit payback clause generally do not create this obligation, which is why the exact lease language matters more than a rule of thumb.
Is a TI allowance the same as a rent abatement?
No. A TI allowance funds construction costs; a rent abatement is a period of reduced or waived base rent, usually granted at the start of a term. Leases frequently include both, and they are tracked as separate fields — abstracting one without the other misses a material part of the deal economics.
Abstracting leases with tenant improvement allowance terms?
Our specialists capture this clause — and every other one — with page citations and human QA sign-off. See Medical Office Lease Abstraction.
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